Pre-Construction Homes | GTAMotorcycle.com

Pre-Construction Homes

black_CG2

black_CG2

Well-known member
Hey folks,


Anyone have idea about pre-construction homes? I have been hearing stuff that you "buy" the home may be for 500k with a small down payment. Then hopefully it appreciates in two years and you walk away with profit.


I am naive but I would like to research more into this. Thanks.
 
And what if the housing price situation that we have now, turns out to be a bubble, and it bursts? You may be on the hook for the difference.

There are foreseeable circumstances that could cause a housing price bubble to burst - notably, increases in interest rates. Given the extremely low interest rates in place right now, I would consider this risk to be significant.

Protect your downside. I would consider what you are proposing to be extremely speculative.
 
black_CG2 said:
Hey folks,


Anyone have idea about pre-construction homes? I have been hearing stuff that you "buy" the home may be for 500k with a small down payment. Then hopefully it appreciates in two years and you walk away with profit.


I am naive but I would like to research more into this. Thanks.
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The game used to work really well (especially with condos). Lately, everyone is expecting ridiculous appreciation so much of it is priced into the product at the beginning (eg. larger return for the builder, less return for the buyer). It is good you are doing your research beforehand. There are many traps for young players (eg. many condos now prevent the sale of condos during the first year after occupancy). Also, if you were to buy and sell without living in the house, there would definitely be tax implications.

I personally haven't done it so I don't know all the tricks, but I know enough that I would be having a lot of conversations with smart and experienced people beforehand.

EDIT:
In one case, a condo appreciated so much pre-construction that the builder cancelled all of the contracts and registered the building as a rental building where each unit was a condo owned by the builder (so they can easily sell them in the future). Dirty pool. The builder was required to repay the deposits plus interest of prime minus 8% or so IIRC. Many buyers had put their 50K on a 300K unit years before. Now they are handed back their 50K and comparable units are 600K and unaffordable. They missed the boom and many are going to be perpetual renters.
 
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Speculative or not if you can afford it, do it. Easy money at best, worst you now own a new property. Easier on gains taxes if you can "live" in it for a year, as grey ghost posted above.

I wouldn't advise though if this is your first property, if you need financing or you are banking on it to make money. It is a gamble.
 
No point buying pre-construction. You're forking over your cash and getting nothing in return until X months/years later.

Put your money down on an existing house now, have a tenant cover your interest and taxes, and sell next year. Less risk too.
 
We currently do this, but usually on assignment. We specifically buy houses that are pre-construction during VIP events through the builder. We never close and we always sell on assignment. Our criteria for this is to buy in an area that has a strong rental i.e. near a highway or something where it'll be easy to rent. We don't care if the bubble burst. Never do more than 4 houses at once. Never close with the builder. Always have 30% minimum invested in the property.

Netted $300k last year (before tax). This year looking at the same over two properties. Don't get creative with try to evade tax. Just pay it and move on.

This year we are also renovating a house and selling at the end of summer. Construction is 90% done at $50k in with $20k more to go to finish basement and do separate entrance. Hoping to sell for $120k above market value. I don't know if we'll get it.

black_CG2 said:
Hey folks,


Anyone have idea about pre-construction homes? I have been hearing stuff that you "buy" the home may be for 500k with a small down payment. Then hopefully it appreciates in two years and you walk away with profit.


I am naive but I would like to research more into this. Thanks.
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meme said:
Speculative or not if you can afford it, do it. Easy money at best, worst you now own a new property. Easier on gains taxes if you can "live" in it for a year, as grey ghost posted above.

I wouldn't advise though if this is your first property, if you need financing or you are banking on it to make money. It is a gamble.
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Real estate is a good investment if you have enough money to cover a burst bubble. Plus what Brian P said.
 
GreyGhost said:
The game used to work really well (especially with condos). Lately, everyone is expecting ridiculous appreciation so much of it is priced into the product at the beginning (eg. larger return for the builder, less return for the buyer).
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Yeah, it really depends on the property. We visited Toronto a few years ago and rented a condo downtown from someone who originally bought the place as a flip. Turns out the condo market was saturated in that area and she was underwater by $50K by the time the unit was completed. So to recoup costs and to wait for the market to come back to her, she reluctantly became a landlord...
 
nobbie48 said:
Real estate is a good investment if you have enough money to cover a burst bubble. Plus what Brian P said.
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Or if you're going in with a sum that won't destroy your life if lost..
 
black_CG2 said:
Thank you everyone. You all make legit points.

LiNK666, how does buying and selling on assignment work?
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In an assignment sale you're selling your contract for the purchase of a house from the builder. You're assigning the sale to someone else.

The idea is that you're (supposedly) buying below market value by going in pre-construction, and as time passes and the builder sells out of inventory, the property value is increasing before the house is even built. The longer you wait the more it appreciates.

Builders have rules and associated fees for this kind of thing, but its a viable option.
 
Exactly what mmmnaked said. Important thing to note is that it cannot be listed through MLS so you need an agent with a big database of clients. You also avoid all the closing costs, taxes and levies associated with closing as the buyer assumes it. Important thing to note is that if you do decide to close, you are liable for the HST which is included in the price. More than likely it'll be assumed it's an investment and the builder always keeps the HST rebate for themselves.

black_CG2 said:
Thank you everyone. You all make legit points.

LiNK666, how does buying and selling on assignment work?
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mmmnaked said:
In an assignment sale you're selling your contract for the purchase of a house from the builder. You're assigning the sale to someone else.

The idea is that you're (supposedly) buying below market value by going in pre-construction, and as time passes and the builder sells out of inventory, the property value is increasing before the house is even built. The longer you wait the more it appreciates.

Builders have rules and associated fees for this kind of thing, but its a viable option.
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mmmnaked said:
In an assignment sale you're selling your contract for the purchase of a house from the builder. You're assigning the sale to someone else.

The idea is that you're (supposedly) buying below market value by going in pre-construction, and as time passes and the builder sells out of inventory, the property value is increasing before the house is even built. The longer you wait the more it appreciates.

Builders have rules and associated fees for this kind of thing, but its a viable option.
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Basically like buying futures in pork bellies. If the market crashes I hope you like bacon.
 
nobbie48 said:
Basically like buying futures in pork bellies. If the market crashes I hope you like bacon.
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The market has been "crashing" for about 15 years now. But even a broken clock is right twice a day, so yes eventually things will start going south. Such is life when you're investing (gambling)
 
nobbie48 said:
Basically like buying futures in pork bellies. If the market crashes I hope you like bacon.
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Except you still have an asset. Sure you may be underwater by 20 or 30%, but since you should have been investing money you didn't need to live on anyway you can wait for it to recover. In the current market, assuming you "purchased" the property more than a year ago for a reasonable price , any correction is unlikely to put you underwater.
 
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What goes up must come down. That is the rule off life. Our basic philosophy is that never spend what you can't afford to lose and be in an area that's easy to rent.

mmmnaked said:
The market has been "crashing" for about 15 years now. But even a broken clock is right twice a day, so yes eventually things will start going south. Such is life when you're investing (gambling)
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nobbie48 said:
Basically like buying futures in pork bellies. If the market crashes I hope you like bacon.
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GreyGhost said:
Except you still have an asset. Sure you may be underwater by 20 or 30%, but since you should have been investing money you didn't need to live on anyway you can wait for it to recover. In the current market, assuming you "purchased" the property more than a year ago for a reasonable price , any correction is unlikely to put you underwater.
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I think it's a great way to make money if you can stomach a possible correction.

Was way more money in it when builders prices were at less than market but now even the starting price is high so you need to be pretty confident, or able, to wait it out if the market tanks (I don't think it will).

hell if I had the equity in my place to buy another one from a builder I'd be all over it...
 
The best way to make money long term nowdays is to become a slum lord out west in the older duplex, triplex or small apartment buildings. That'll probably be our direction soon. It's great for cash flow and staying net positive with a rental long term
 
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